Sri Lanka central bank injects cash overnight, term, and outright

ECONOMYNEXT  – Sri Lanka’s central bank has injected 2.76 billion rupees in permanent money and is lending new money to the banking system near its policy deposit rate, following a drop in liquidity and its treasury bill stock.

On August 20, the central bank bought 500 million rupees of bills maturing on May 22, 2020 at 7.86 percent, 1.25 billion rupees of May 2020 bills at 7.86 percent and 1.0 billion rupees of June 05, 2020 bills at 7.86 percent totaling, 2.75 billion rupees.

Another 7.9 billion rupees was injected overnight at 7.72 percent.

The central bank also loaned 9.1 billion rupees of 7-day money till August 27 at 7.58 percent near its 7.50 policy deposit rate through a reverse repo auction on August 20. The policy overnight lending rate is 8.50 percent.

On August 19 4.5 billion rupees was injected till August 26 and, 2.5 billion rupees from August 20 to September 03 and 3.0 billion till September 02.

Most of the injections have come after August 15.

The aggregate balance of Sri Lanka’s banking system dropped sharply on Friday August 16, from 34 billion rupees to 7.2 billion rupees.

At the same time the disclosed Treasury bill stock of the central bank from 106 to 77 billion rupees, which usually indicate a sell-down of bills to holders outside the monetary authority or a repayment to the central bank from the Treasury.

Bills taken in for term reverse repo auctions are kept out of the total holding.

However the central bank also printed additional money to the banking from the 7 to 14 August, to further pump up excess liquidity, after effectively allowing unsterilized excess liquidity to build up for around three weeks, raising concerns for the stability of the currency.

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Sri Lanka central bank injects cash overnight, term, and outright

In 2018 the rupee collapsed after two excess liquidity shocks generated runs on the rupee.

However in 2019, credit growth has been weak and until August 7, excess liquidity did not come from printed money but dollar purchases. (Colombo/Aug21/2019)